A test of conjoint analysis for the social valuation of environmental services

Environmental policy makers have been impeded by the lack of a versatile, objective valuation methodology. Forty years ago the Contingent Valuation Method (CVM) was developed to fill this void, but has its validation record has been mixed. A critical challenge to the CVM is the seemingly arbitrary responses obtained in studies of embedding. One such study was fielded by Kahneman and Knetsch in 1992. They found significantly different valuations for the identical environmental service depending upon the level of embedding, leading the authors to conclude that their valuations were “arbitrary”.; The hypothesis of this study is that the failings of the CVM are due to methodological short-comings, not the infeasibility of the task. Specifically, the CVM as executed by Kahneman and Knetsch lacked a number of the characteristics that support rationality in the real-world marketplace. A new methodology was designed based upon an extensive review of the CVM literature. Conjoint analysis is used to meet several of the criteria of the new methodology. With the exception of these methodological improvements, the Kahneman and Knetsch, 1992 study was replicated.; The data obtained from three independent sub-samples, of different levels of embeddedness, exhibit theoretically appropriate demand curves yielding similar estimates of respondent's willingness to pay for the subject environmental service. This is in contrast to the findings of Kahneman and Knetsch. Moreover, the findings demonstrate a potential role for non-homogeneous response among relevant population segments to create differently biased samples in each sub-sample producing inconsistencies not unlike those found by Kahneman and Knetsch. Finally, this study explored the phenomenon Kahneman and Knetsch named, the purchase of moral satisfaction and found two distinct population segments. One that exhibits theoretically posited utility maximizing behavior and the other that appears to desire to pay its fair-share of social costs. This latter segment may well be willing to purchase moral satisfaction and not exhibit theoretically appropriate behavior. Finally, a series of analyses are presented that deconstruct the role of various experimental design elements in obtaining these results.